5 Stocks Under $10 Set to Explode Higher - views

WINDERMERE, Fla. (Stockpickr) -- There isn’t a day that goes by on Wall Street that certain stocks trading near or under $10 a share don’t experience massive spikes higher. Traders savvy enough to follow the low-priced names and trade them with discipline and sound risk management are banking ridiculous coin on a regular basis.

Just take a look at some of the hot movers in the under-$10 complex Wednesday, including Recon Technology (RCON), which skyrocketed higher by 39%; School Specialty (SCHS), which soared 23%; Dynasil Corporation of America (DYSL), which ripped higher by 22%; and Patriot Coal (PCX), which also closed up 22%. You don’t even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.

I’m not as eager to recommend investing long term in stocks that trade less than $10 a share because these names can be very speculative, and the odds for picking the long-term winners aren’t great. But I definitely love to trade stocks that are priced below $10. I like to view them as a trading vehicle with lots of volatility and lots of upside when the trade is timed right.

When I trade under-$10 names, I do it almost entirely based off of the charts and technical analysis. I also like to find under-$10 names with a catalyst, but that’s secondary to the chart and volume patterns.

One under-$10 name that’s trading very close to triggering a major breakout trade is ParkerVision (PRKR), which is engaged in the business of designing, developing and selling its radio frequency technologies and products for use in semiconductor circuits for wireless communication products. This stock is off to monster start in 2012, with shares up over 85%.

If you take a look at the chart for ParkerVision, you’ll notice that this stock has been uptrending strong for the past six months, with shares skyrocketing from a low of 74 cents to a recent high of $1.68 a share. During that uptrend, shares of ParkerVision have consistently made higher lows and higher highs, which is bullish technical price action. Now this stock is starting to flirt with a major breakout trade since its starting to challenge some near-term overhead resistance.

Traders should now look for long-biased trades in PRKR if it can manage to trigger a breakout above some near-term overhead resistance at $1.62 to $1.68 a share with high volume. Look for a sustained move or close above those levels with volume that’s near or well above its three-month average action of 314,898 shares. If we get that action soon, then PRKR has a great chance to continue its strong uptrend towards its next significant overhead resistance levels at $2 to $2.50 a share.

Volume on Wednesday registered 795,000 shares as PRKR closed up 11% to $1.60. That move briefly pushed the stock above $1.62 in intraday trading after PRKR hit a high of $1.68 a share. Traders should now look for PRKR to sustain a high-volume trend above $1.62 to $1.68 to confirm it wants to move much higher.

Fonar

Another under-$10 stock in the medical equipment and supplies complex that looks poised for some decent upside is Fonar (FONR), which is engaged in the business of designing, manufacturing, selling and servicing magnetic resonance imaging scanners, which utilize MRI technology for the detection and diagnosis of human disease, abnormalities, other medical conditions and injuries. This stock has been skyrocketing so far in 2012, with shares up over 150%.

If you take a look at the chart for Fonar, you’ll notice that this stock made a huge run in March and April after it broke out above $2.84 a share with high volume. That breakout set the stock off to the upside with shares tagging a high of $6.80 a share in a very short timeframe. Since hitting that high, shares of Fonar have pulled back to a recent low of $3.40 a share. That move pushed the stock back below its 50-day moving average of $3.92, but on Wednesday the stock recaptured that moving average after it closed up 13.4% to $4.30 a share with above-average volume.

Market players should now look for long-biased trades in FONR if it can manage to trigger a break out trade above some near-term overhead resistance at $5.00 to $5.28 a share with high-volume. Look for volume on a sustained move or close above those levels that register near or well above its three-month average action of 390,967 shares. If that breakout triggers soon, then FONR could make a huge move back towards that recent high of $6.80 a share, and possibly take that high out.

If you’re in the bull camp on FONR, then one could anticipate the breakout and look to buy this stock off any noticeable weakness. I would use a stop right below its 50-day moving average of $3.92 a share, or right around that recent low of $3.40 a share if you want to give it more room. If you buy off weakness, I would then add to any long positions once its clears $5 to $5.28 with high-volume.

Zale

One under-$10 name in the specialty retail complex that’s trading within range of a major breakout trade is Zale (ZLC), which, through its wholly owned subsidiaries, is a specialty retailer of fine jewelry. This stock has struggled so far in 2012, with shares off by around 30%.

If you take a look at the chart for Zale, you’ll notice that this stock has been downtrending for the past six months, with shares dropping from a high of $4.05 to a recent low of $2.18 a share. During that move lower, shares of Zale have consistently made lower highs and lower lows, which is bearish technical price action. That said, on Wednesday this stock gapped up over 13% to $2.64 a share on above average volume. That move has now pushed ZLC within range of triggering a major breakout. That move is also going to give Zale a chance of reversing its downtrend chart pattern.

Market players should now look for long-biased trades in ZLC if it can manage to trigger a break out above some near-term overhead resistance levels at $2.79 to $2.84 a share with high volume. Look for a sustained move or close above those levels on volume that’s near or well above its three-month average action of 297,425 shares. Keep in mind that this stock’s 50-day moving average sits at $2.78 a share, so if that breakout triggers it will mean that key level has also been taken out. If we get that action soon, then ZLC could easily rip higher back towards its 200-day moving average of $3.32 a share, or possibly back towards its six month high of $4.05 a share.

If you buy this stock off of weakness and anticipate the breakout, then I would simply use Wednesday’s low of $2.40 as my stop. I would rather play this name off of strength though since that a breakout above $2.79 to $2.84 will push ZLC back above its 50-day. Volume on Wednesday was 777,500 shares, which was well above its three-month average of 297,425 shares. That’s bullish action, so look for strong volume trends to continue if ZLC triggers that breakout soon.

Another under-$10 stock that looks ready to trigger a sharp move higher is Silicon Graphics (SGI), a technical computing company that develops, markets and sells a range of computing servers and data storage, as well as differentiating software. This stock has been trending lower so far in 2012 with shares off by around 48%.

If you take a look at the chart for Silicon Graphics, you’ll notice that this stock has been destroyed by the sellers with shares dropping from its February high of $14.93 to a recent low of $5.02 a share. That big move lower has now created an extremely oversold condition since shares of Silicon Graphics have been showing a relative strength index reading of below 30 for the past couple of weeks. Since this stock flashed some high-volume strength on Wednesday, shares of Silicon Graphics could be preparing to rebound sharply higher.

On Wednesday, volume registered 1.38 million shares, which are well above its three-month average action of 805,462 shares, as the stock closed up 12% to $5.90 a share. That move is coming off a recent area of support at around $5.02 a share. I am calling this support because for the past few weeks SGI has held above that level as buyers stepped in to defend the stock.

Market players should now look for long-biased trades in SGI if it can manage to trigger a break out above some near-term overhead resistance at $6.33 a share with high-volume. That $6.33 area is the high on this stock for the day following a recent high-volume gap down from over $9 to under $6 a share. Look for volume off a sustained move or close above $6.33 that registers near or well above its three-month average action of 805,462 shares.

If we get that high-volume move above $6.33 a share, then SGI could easily spike big back towards its 50-day moving average of $8.49 a share, or possibly much higher into the $9 to $10 area. If you buy this stock off of weakness and anticipate the breakout, then I would use a stop just below $5.02 a share. If you buy off strength on a high-volume move over $6.33, then I would use my stop just below Wednesday’s high of $6.07 a share.

New Gold

One more under-$10 name that’s setting up for a breakout play is gold miner New Gold (NGD). This is a gold mining company, engages in the acquisition, exploration, extraction, processing, and reclamation of mineral properties. It primarily explore for gold, silver, and copper deposits. This stock is off to a slow start in 2012, with shares off by around 10.5%.

If you take a look at the chart for New Gold, you’ll notice this stock has been downtrending for the past three months, with shares dropping from a high of $12.25 to a recent low of $7.13 a share. During that downtrend, shares of New Gold have consistently made lower highs and lower lows, which is bearish technical price action. That said, the stock has recently started to rebound off that $7.13 low and is now trading within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in NGD if it can manage to clear some near-term overhead resistance at $8.90 a share, and its 50-day moving average of $9.17 a share with high-volume. Look for a sustained move or close above those levels on volume that’s near or well above its three-month average action of 3,281,690 shares. If we get that move soon, then NGD should easily spike higher back towards its 200-day moving average of $10.87 a share or possibly much higher above $12 a share.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.